ISLAMABAD (Reuters) - The operator of a $3 billion joint venture copper and gold project in Pakistan is hopeful the project will go ahead despite a government threat to scrap it because of misgivings about the share of benefits. The project is owned by Canadas Barrick Gold and Chilean copper miner Antofagasta. The two firms are partners in the Tethyan Copper Co. (TCC) which has a 75 percent interest in the Reko Diq project in Balochistan and hold the exploration license for the site. The provincial government holds the remaining 25 percent. Tethyan is finishing up a feasibility study into the site, which could yield 22 billion lb (10 billion kg) of copper and 13 million oz (368 million grams) of gold over the 50-60 year project, and aims to apply for a mining license within weeks. But late last year, the provincial government said it wanted to cancel the project, ostensibly to get control of resources in Balochistan where anger over exploitation of gas and minerals is fuelling a separatist insurgency. Peter Jezek, chief executive officer of Tethyan Copper Co., said the authorities were worried about getting a fair deal and also wanted to undertake smelting and refining to ensure the maximisation of benefits. But Jezek said anxiety about Pakistans first world-class mining operation was largely the result of misunderstandings. There is a combination of a lack of information and fear of the unknown, Jezek told Reuters in an interview in his Islamabad office. The problem to a very large extent is not having the basics of understanding in place. The fear on their side, obviously, is 'are we getting a fair deal?, he said. The authorities proposal to set up a smelting and refining operation was based on a doubtful perception of benefits. Mining and concentrating actually captures over 90 percent of the copper chain value, smelting less than 10 percent ... We have pointed out that the economics of smelting and refining are very poor, Jezek said. CHANGING POLITICAL ENVIRONMENT The cancellation of the project would further damage Pakistans image as a destination for foreign investment. Net foreign investment in Pakistan fell 34.4 percent to $1.47 billion in the first seven months of the 2009/10 fiscal year compared with $2.23 billion in the same period last year. Separatist rebels in Balochistan have been fighting a low-level insurgency for decades for control of the provinces resources, which they say are unfairly exploited by richer and more powerful provinces. The government has recently introduced reforms aimed at giving the province more autonomy. While Jezek said security had not been an issue at the remote Reko Diq site, in a wedge of territory bordered by Afghanistan and Iran, the politics matter. We certainly are stuck right in the middle of the changing political environment where Baluchistan is getting a greater degree of autonomy, he said. Its tough. Its really difficult because the environment is so politicised, theres so much uncertainty. The uncertainty could also damage prospects for financing the projects $3 billion first phase. The bankers are telling us its going to be doable but its going to be tough, he said, adding that despite the uncertainty, Barrick and Antofagasta remained commited. The basic belief is eventually the government is going to realise that what is being proposed makes sense, he said. I think over time there is a greater realisation that there is a solution through working these issues with us rather than saying 'throw this baby out and lets start from scratch which would be really catastrophic for the people of Balochistan. Balochistan should use their foreign partners as tools to transfer technology and jump start the mineral industry, he said. If we destroy the economic viability of the project nobody is going to benefit. The investment is not going to materialise and this national treasure if going to stay as fine crystals way underground, he said.